Cashin’s Comments AN ENCORE PRESENTATION 02.11.10

On this day in 1812, Governor Elbridge Gerry of Massachusetts was asked to arbitrate an important matter in the new nation. Who better could you want? Gerry had signed the Declaration of Independence, been part of the Constitutional Convention and served as a member of Congress, before becoming Governor of Massachusetts.

As a father of our country Gerry was asked to determine the lines of reapportionment for the State's senatorial delegation. He proceeded to draw a group of crooked lines that made a random walk look like a moonshot. Amazingly, these squiggles happened to coincide with the strong points of Gerry's party. And a new word entered the language -Gerrymander - meaning to abuse your power in order to
enhance the election chances of your friends and yourself. In the American tradition
of justice, Gerry was punished by being elected the Vice President of the United States under James Madison one-year later.

Luckily for the nation no person known to do anything crooked or even to show
favoritism to his friends was ever sent to national politics again.

Before we leave the multi-talented Founding Father, we should point to
pronunciation. Most Americans (and non-Americans) tend to pronounce the
eponymous drawing of erratic but favorable guidelines "Jerry mandering". But
Elbridge and his family pronounced the "G" as in Gary or Good. Or, maybe some
spinmeister of the 1800's convinced the media and the public to pronounce the deed
differently from the doer.

However you pronounce it, the market looked grounded and grungy yesterday. The
volume bordered on the non-existent but that didn’t keep prices from gyrating.
Back To Follow The Bouncing Buck – Rumors about a possible rescue package for
Greece dominated Wednesday’s trading. As each new rumor made the rounds, the
dollar basket (DXY) would react. Whatever that reaction was, it produced an opposite
reaction in gold, oil and U.S. stocks.

As stocks opened, rumors circulated that a meeting of the two key political parties in
Germany had ended without a Greek bailout plan. The DXY rallied and stocks headed
lower quickly.

About 10:30, other rumors circulated that a rescue plan had not been hammered out
but was still in the works. In Pavlovian response, the DXY reversed and headed lower.
Bids returned in stocks, gold and oil.

Over the balance of the day, the markets zigged and zagged in response to each new
rumor or conjecture. As we had projected in Wednesday’s Comments, the East Coast
blizzard left markets thin and thus susceptible to short choppy swings.
The action did little to clarify the technical picture. The churning ate into some of the
oversold condition but provided no clear signal of direction.

It’s Great To Have Articulate Friends – Yesterday, I quoted extensively from my pal,
Dennis Gartman, on the strictures that the Lisbon Treaty puts on any bailout. Today, I
crib from another good friend, John Mauldin, on some of the political problems of a
rescue package. In his intro to this week’s Outside the Box, John wrote:

I made the point that if Greece defaults it does not necessarily mean they have to leave the EU, any more than if
Illinois defaulted they would have to leave the United States. Greece could still use the euro and life could go on.
EXCEPT. The markets would no longer lend the Greek government money at anything close to a livable rate.
Greece would be forced to balance its budget. Since they are part of the euro, devaluing the currency is not an
option. The results of controlling their fiscal deficit would not initially be pretty and would almost insure a serious
prolonged recession or depression in the Greek area, with fall out in the region. It would be a sad decade for
Greece. But in the long run, it is a better option than default.

Further, and more important to the rest of Europe and the world, the results of a Greek default would be
financial turmoil. 250 billion euros (and maybe 300!) of Greek debt is in international bond funds, pension and
insurance companies, and above all at banks. Think German banks. Already undercapitalized banks. Also, think
of all the investment banks who have been selling relatively cheap (given the apparent risk) credit default swaps
on Greece, in an unregulated market, exposing their balance sheets. What should be a simple, if sad, matter for
the Greeks, becomes a problem for the world, just as subprime debt in the US caused a world credit crisis. And
the risk of contagion from Portugal, Spain, et al is serious. 2 trillion euros of debt could get downgraded by the
bond market in very short order. It could be a replay of the last credit crisis, just with new actors as the prime
problem.

Bailing out Greece without serious and credible deficit reductions by their government over the next few years
would simply delay the problem, and it is not altogether clear the bond markets would go along for very long. At
the end of the day, it may be the bond market which forces the Greek government and its people to take some
very bitter medicine. Stay tuned. This is just the beginning of what will be a series of sovereign debt crises over
the coming decade. It is important for the world that we get this one solved right, or the consequences will be
quite severe.

There are vague reports this morning that the EU leadership, with Germany’s blessing, has agreed on a rescue plan. But, as of this writing, there are no details available. We don’t even know what the structure will be. Therefore, we don’t know
how they address the challenges John outlined. The bottom line will be how the unions and populace react to the government’s austerity moves. These are certainly
interesting times.

Cocktail Napkin Charting – As noted above, Wednesday’s action may have clouded rather than clarified the technical picture. Even a seasoned technician like Walter Murphy titled his discussion this morning “A Coin Toss”. Yesterday, the S&P circled the wagons within the support band of 1058/1053. The intra-day low was 1059. The snowstorm may have postponed the technical resolution. Now the Lunar New Year may blur trading as much of Asia goes on holiday. Nonetheless, a definitive move appears to be looming in the next few trading days. We hope to get
some clue to direction before it actually happens.

For today, the napkins suggest that first support still is 1058/1063. Resistance looks like 1074/1078 and then 1083/1088

Consensus – The details of the deal on Greece may make or break the markets. Initial Claims will also be an influence. Choppy trading likely to continue. Stay very nimble.

Trivia Corner
Answer - In Ed Garr's project the painters get $70 and the trimmers get $30 per day (obviously it's not NYC).
Today’s Question – In keeping with Governor Gerry - Speak softly - A "G" can be hard (as in Grant) or soft (as in Gypsy).
Name a common six letter word (no hyphens) that has two soft "G's". (Hint - think kitchen!)